Shipping CO2 controls to raise transport costs

LONDON Thu Apr 10, 2008 11:42am EDT

Container ships are seen off the coast of Newcastle, Australia March 11, 2007. REUTERS/David Gray

Container ships are seen off the coast of Newcastle, Australia March 11, 2007.

Credit: Reuters/David Gray

LONDON (Reuters) - The world's shipping industry plans to limit its growing carbon dioxide emissions by taxing marine fuels and signing up to a new climate change deal in moves likely to raise transport costs for raw materials.

Experts say the measures, aired at an International Maritime Organisation (IMO) meeting on fuel pollutants in London last week and about a year away from being formally agreed, will be painful but are necessary in the fight against climate change.

"If costs go up then consumers will have to pay ... and that looks like the scenario," said Don Gregory a fellow of the Institute of Marine Engineers.

Shipping, because it operates out of sight on the oceans, has avoided the high-profile criticism for its production of CO2 as aviation, but its emissions are high and growing.

A scientific study prepared for the IMO in December found annual CO2 emissions from ships are more than twice previous estimates at 3.5 percent of the global total. That compares with 2 percent of global emissions from aviation.

The report said shipping emissions could increase by at least another third by 2020 as ocean trade, carrying 90 percent of the world's traded goods by volume, continues to rise.

"The carbon tax would clearly be an additional cost for operators who will pass it on, but you have to see it in the context of the overall transport cost which is still small," said Simon Bennett secretary at the International Chamber of Shipping (ICS).

COSTS "MINIMAL"

Gregory, who also works on the environmental side at an oil major, agreed:

"The (former World Bank chief Nicholas) Stern report suggested those costs would be minimal compared with the costs of climate change."

Some executives believe that even the IMO's latest figures may be underestimating the true scale of shipping emissions.

"We believe the IMO is grossly underestimating future growth in shipping," said Christian Eyde Moller, chief executive of Dutch-based DK Group, a marine technology firm that specializes in reducing ship emissions.

Moller says CO2 emissions could exceed 2 billion metric tonnes in 2020, rather than the IMO's 1.475 billion estimate.

The IMO's plans will be reassessed in June before a decision in 2009 ahead of a UN's climate change conference in Copenhagen.

"What is pivotal is that they have decided to do something and that they now have a timescale to do that: a legislative solution by Spring 2009," said Peter Hinchliffe, ICS marine director.

DOZENS OF PROPOSALS

Dozens of initiatives and technological solutions are being considered to try to limit shipping emissions, several of which will directly or indirectly increase costs.

One of the most talked about is a global tax on marine fuels, known in the industry as bunkers, for all ships on international voyages. The tax would establish a baseline of fuel used and calculate CO2 generated.

A levy and credits scheme to curb gases from ship exhausts would also raise the cost of using heavily emitting ships.

A CO2-Index for new ships has also been proposed, which would allow the design and construction of vessels to be measured so that firms could choose environmentally-friendly designs.

The European Union favors incorporating shipping into a global emissions trading scheme.

Many of the proposals have merits, analysts say.

"The levy (tax) sounds very simple and has some attraction but we are not convinced that it can be applied internationally," Hinchliffe said.

"Personally, I think that CO2 (trading scheme) is more attractive than any previous discussions on emissions trading on SOX and NOX (pollutants) which just seemed to us impossible," he said, pointing out that they were unlikely to run concurrently.

"My instinct is that IMO will go for a simple solution: one scheme that applies equally to all ships."

(Additional reporting by Gerard Wynn; editing by Chris Johnson)